Goodman Group Annual Report 2012 Global partner + Global platform This page has been left blank intentionally Contents Chairman’s letter 2 Group Chief Executive Officer’s report 4 Corporate governance 9 Corporate social responsibility 19 Consolidated Financial Report for Goodman Limited 23 Consolidated Financial Report for Goodman Industrial Trust 130 Securities information 188 Corporate directory Inside Back Cover 1 Chairman’s letter 2012 has been another successful year for Goodman with We have also prudently increased our allocation of our strategic focus remaining on the prudent allocation resources to fund our expansion into China. We entered of resources, both financial and human, to drive earnings this market in 2005 and the significant growth that we are growth and build long-term value for our stakeholders. We now benefiting from comes only after a number of years of continue to gain market share across our operations by understanding and investing in the local market, developing identifying unique opportunities, focusing on delivering high long-term relationships with capital partners, customers and standards of service and consistently high quality product for government bodies, combined with building a capable and our customers and investors. experienced local management team. Goodman delivered a strong financial result with the During the year, we reached a number of significant financial highlights including: milestones. We have grown to become one of the largest industrial developers in China and with over 4 million sqm + an operating profit after tax of $463 million, a 21% increase of land available we have the development capability to on 2011; commence 800,000 sqm of developments in the next + a statutory profit attributable to Securityholders of 12 months. We have now completed our first development $408 million, a 4.2% increase on 2011; in Beijing, 100% pre-leased to customers including Nippon + fully diluted operating earnings per security of 30.5 cents, Express and DB Schenker, with whom we have strong an 8% increase on 2011; relationships globally. In May, the Group also expanded into + distribution per security of 18.0 cents, up 3% on 2011; Tianjin, a strategic location being a major port city and the + a strong financial position with balance sheet gearing gateway for the Bohai Bay region, with the signing of its first maintained at 23.9% and interest cover increasing to built-to-suit facility at Wuqing for major online ladies fashion 5.5 times; and and accessory retailer, Moonbasa. + available liquidity of $1.3 billion with a weighted average debt maturity of 5.9 years. We have achieved these results through an efficient mix of our capital partners’ resources and those of the Group. In The strong competitive position we have built globally and late August, Goodman and CPPIB announced their increased the new relationships created combined with established equity commitment to Goodman China Logistics Holdings relationships have allowed Goodman to expand using an to US$1 billion. This partnership was formed in 2009 on an optimal mix of its own resources and those of our partners. 80/20 basis and the further commitment is a reflection of A recent example is the establishment of our new global the strong development activity being driven by the demand partnership, initially in Australia, with Employees Provident for high quality logistics product and the strength of the Fund (EPF) of Malaysia, securing a combined initial equity relationship. Goodman now has a strong local team of 315 commitment of $500 million to invest in high quality, in Greater China to ensure that the Group’s high quality stabilised logistics assets. product and customer service standards are met. They have Our entry into the US, the world’s largest logistics market also leveraged the Group’s global customer relationships is another example, which enabled us to further extend to add Kuehne + Nagel, DHL and CEVA Logistics to their our relationship with the Canada Pension Plan Investment local portfolio. Board (CPPIB) to launch a new logistics and industrial partnership called the Goodman North America Partnership. Goodman and CPPIB have targeted an initial equity amount of US$890 million on a 55/45 basis. This capital partnership is in conjunction with the agreement between Goodman and California based Birtcher Development & Investments (Birtcher) for the development of, and investment in, prime quality logistics and industrial facilities in key locations across North America. A highly experienced team, combining Birtcher’s local market expertise with Goodman’s fund management capability, has been deployed to establish the Group’s North American operations. To date, four sites have been secured; two in the Los Angeles area, one in the San Francisco Bay area and one in Philadelphia, with in excess of 900,000 sqm of gross lettable area and a completion value of more than US$700 million. Goodman Annual 2 Group Report 2012 Despite the significant expansion of our global platform and The Goodman Foundation continued to support both the growth that the Group experienced in 2012, we continue underprivileged in our community as well as providing to take a long-term strategic view, consistent with our support to communities in times of need. In the 2012 own+develop+manage business model. Our entry into the financial year, the Goodman Foundation expanded US followed a number of years of due diligence and research internationally to include China, New Zealand and the UK via to find the right opportunity and time to enter the world’s new partnerships which include Benji’s centre, Duffy Books largest logistics market. Likewise, we recently announced in Homes and Wooden Spoon in these countries respectively. that we are currently undertaking due diligence in Brazil, one Opportunities in Europe are currently being finalised for of the world’s largest emerging markets, to partner with a implementation in the 2013 financial year. local company for its knowledge and network. Entry into new markets and realisation of profits take time and our strategy During the year, we also continued to undertake a Board is to expand prudently, allowing the Group to capitalise on its renewal process. Consistent with our strategy of having a unique opportunities. diverse team who could bring new skills and experience to the Board, I am very pleased to welcome Mr Philip Fan This growth in the Group’s international operations has and Ms Rebecca McGrath to the Goodman Board. Philip provided not only diversity of earnings but also access to a brings deep knowledge of the Chinese market and property broad range of opportunities. Despite flat market conditions expertise. Rebecca has worked across a broad range of globally, Goodman has selectively participated in a number disciplines including finance, operations and corporate of opportunities across the logistics sector. While many planning in Australasia, the UK and Europe. European markets have been weak, Goodman’s operations are focused on the more stable markets where development I am very pleased with the progress that Goodman has made activity has remained strong, particularly in Germany, France in 2012 and am confident that we have adopted the right and Benelux. Demand for our product continues to be strategy to enable us to leverage unique opportunities and robust, driven largely by an undersupply of prime quality the Group’s resources to our advantage in the coming year. industrial space globally and a number of structural changes We will continue to take a long-term strategic view, growing taking place, including the rapid growth in e-commerce. the business in a prudent manner and being patient with our investment opportunities. The dedication and hard work of During the year, Goodman commissioned an independent our staff around the world have been significant contributors research report into the impact of the e-retailing sector on to this result and in positioning the Group well for future the logistics market. The report confirms the strong demand success. I would like to thank our Securityholders, capital for high quality, built-to-suit warehousing solutions amid partners, customers and staff for their continued commitment the rapid growth in the sector. This presents a range of and valued support. opportunities for Goodman, which understands local market dynamics and has the specialist expertise and experience to respond to the specific property needs of individual e-retailers and the third party logistics providers who service them. The sector now represents one of the Group’s largest customer groups with a number of large developments Ian Ferrier, AM undertaken over the last few years around the world for Independent Chairman companies including Amazon, Zalando and Moonbasa. In March, we received Securityholder approval at an Extraordinary General Meeting to undertake an internal restructure of the Group (Restructure), by adding a new Hong Kong company, Goodman Logistics (HK) Limited (GLHK), to Goodman’s existing stapled structure. With over 600 Goodman employees and around half of our assets under management being outside of Australia, the Restructure reflects the global nature of our business and the growth of our operations internationally, with 41% of our earnings being sourced outside of Australia as at 30 June 2012. It is expected that the Restructure will improve Goodman’s profile in Asia, and where appropriate, facilitate our international growth through GLHK. 3 Group Chief Executive Officer’s